Q2 2022 Self Storage Group ASA Earnings Presentation Oslo Aug 17, 2022 (Thomson StreetEvents) -- Edited Transcript of Self Storage Group ASA earnings conference call or presentation Wednesday, August 17, 2022 at 6:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Cecilie Margrethe Brænd Hekneby Self Storage Group ASA - CFO * Fabian Emil Søbak Self Storage Group ASA - CEO ================================================================================ Presentation -------------------------------------------------------------------------------- Fabian Emil Søbak, Self Storage Group ASA - CEO [1] -------------------------------------------------------------------------------- Good morning, and welcome to the second quarter presentation from Self Storage Group. My name is Fabian Søbak. I'm Founder and CEO of the company. And I will be presenting together with my colleague, Cecilie Hekneby, who is CFO. I'm sorry about the delay. We've had some technical issues. So the video is not working, so you will only be able to see the presentation today. So I give the mic to Cecilie. -------------------------------------------------------------------------------- Cecilie Margrethe Brænd Hekneby, Self Storage Group ASA - CFO [2] -------------------------------------------------------------------------------- Thank you. Good morning. So I will take you through the financial development and results for the second quarter and first half year. The second quarter continued a strong and positive development for SSG with solid organic revenue and EBITDA growth, development of new facilities and acquisition of 1 new property. Our footprint in Scandinavia is growing, and we had, at the end of the quarter, 131 facilities with 30,100 storage rooms. We had a total lettable area of 217,800 square meters, of which 180,500 was in operation and 37,300 under development. We have a strong pipeline and a solid foundation for further profitable growth and expansions in the Nordic. In the second quarter, we had all-time high revenues of NOK 97.5 million, an increase of 14% compared to second quarter '21. The growth in revenues is related to high occupancy across all segments, increased average rent, and organic growth through opening of new facilities and expansions. Adjusted EBITDA was also all-time high and increased with 9% to NOK 59.6 million in the second quarter '22 compared to second quarter '21. There were no nonrecurring items in the second quarter this year. Adjusted profit before tax increased from NOK 21 million in second quarter '21 to NOK 31.4 million in second quarter '22. Demand is strong and occupancy has exceeded target level. The average occupancy for sites opened more than 12 months in the second quarter was 90.5%, an increase from 89.2% in the second quarter '21. And the average rent was NOK 2,326 per square meter per year, compared to NOK 2,264 in the second quarter '21. One property in Skien in Norway was acquired during the second quarter. In the first half of '22, we had all-time high revenues of NOK 189.8 million, an increase of 17% compared to the first half '21. The growth in revenues is related to high occupancy across all segments, increased average rent, organic growth through opening of new facilities and expansions, in addition to revenue from Dit Pulterkammer, which was acquired in April '21. Adjusted EBITDA was all-time high and increased with 11% to NOK 110.6 million in the first half year '22 compared to first half '21. There were no nonrecurring items in the first half '22. Adjusted profit before tax increased from NOK 75.2 million in the first half '21 to NOK 87.6 million in first half '22. A total of 7 properties were acquired during the first half year. We opened 8,700 square meters during the first half year, and we are following the plan of opening 15,000 plus square meters this year. At the end of June, we had 180,500 lettable square meters to offer our customers, an increase of 17,200 since the end of June '21. 9,600 square meters of the increase is related to the opening of 7 new facilities, while 6,600 square meters of that increase is related to expansions on already opened facilities. Of the 180,500 square meters lettable to our customers, 165,600 has been in operation for more than a year and are defined as mature. The chart on the lower left-hand side shows the increase in current lettable area as of June 30, 2022, compared to 1 year earlier. And the chart on the lower right-hand side shows the increase in average occupied area for mature facilities compared to the second quarter '21. Average occupancy for the mature facilities in the second quarter was 90.5% and above target level compared to 89.2% in second quarter '21. And the average rent per square meter per year for the second quarter was NOK 2,326 compared to NOK 2,264 for the second quarter '21. Discounts has been used to boost occupancy. But with occupancy at target level, the use of discounts to new customers is reduced, which in addition to CPI adjustments implemented during the first quarter '22, impacts average rent. The like-for-like performance for facilities with comparable lettable area in the second quarter '22 and second quarter '21 has an occupancy of 91.2% and average rent per square meter per year of NOK 2,427. Average occupancy for mature facilities at the group level was 98.5%. And as you can see on the upper chart on the left-hand side, occupancy is increasing and are at high levels for all 3 countries and both concepts. Dit Pulterkammer is reported as part of the City Self-Storage concept at City concept and that is visualized here in the chart. The chart on the right-hand side shows the development in current lettable area according to concept and country. The increased capacity in CSS Norway and OK Minilager consist of both new facilities and expansions. The latter partly impacting the occupancy and average rent. The column to the right on the charts show the development like-for-like for the facilities. And the like-for-like occupancy performance increased from 87.4% in the second quarter '21 to 91.2% in this quarter and above target. The chart on the lower left-hand side shows average rent in NOK for mature facilities for both concepts and the 3 countries. CSS Norway achieved high average rent levels at around NOK 3,000 per square meter per year, while CSS Sweden and CSS Denmark are more on the European average between NOK 2,200 and NOK 2,500. OK Minilager, on the other hand, has low rent levels at about 1,700 per square meter per year, but low operational costs have made it possible to offer the customer the lowest prices in the market and still achieve high margins. The development in average rent in Sweden and Denmark is shown in constant currency. Average rent has increased for all but CSS Norway. Current lettable area has been increased with more than 40,000 square meters in CSS Norway the last 5 years. That is an increase of 160%. And discounts for new customers have been used to boost occupancy. And some larger facilities also need more than 12 months to reach the target of 90% occupancy. Expansions during the year on facilities already opened also impacted numbers. Average rent for the group was NOK 2,326 for the quarter, while like-for-like was NOK 2,427 for the second quarter. Revenue for the second quarter was NOK 97.9 million, an increase of NOK 12 million compared to second quarter '21. Total operating cost in second quarter are NOK 4.6 million higher than in second quarter '21. There is an increase in lease expenses related to 2 long-term lease contracts, now classified as short term. Average remaining lease period for the leased facilities in the City segment, including auctions, is 7 years. And for OK Minilager, which has a number of shorter evolving contracts, the average remaining term is 2 years. Property-related costs are impacted by the increased number of facilities and lettable area in the portfolio compared to the second quarter '21, in addition to the extreme power prices. The increase in salary and other employee benefits of NOK 1.7 million is related to annual wage increases and some new central positions. With the increased size of the group and freehold investment portfolio in the group, the group has focused on IT, branding, plant maintenance, and organizational development to level up the scalable platform for future growth. We continue to make investments in our digital platform to increase automation and customer satisfaction. The rollout of a new identity and communication strategy for both brands were initiated in 2021 and is continued in 2022. There were no nonrecurring items in the second quarter this year, but there was nonrecurring revenue of NOK 0.5 million and nonrecurring costs of NOK 2.8 million in the second quarter '21. Adjusted EBITDA in the second quarter was NOK 59.6 million, an increase of NOK 5.1 million compared to adjusted EBITDA in the second quarter '21. The adjusted EBITDA margin for the quarter is 60.9% and is slightly lower than for the second quarter '21, but we expect the EBITDA margin to continue to remain high since the marginal cost for new unmanned facilities are low and the business model is highly scalable. Freehold investment property has increased 55% during the half year to NOK 2.5 million at the end of June. The chart on the upper right-hand side shows the development of freehold investment property since the IPO in 2017. So we have a defined strategy of growth within freehold property. During the second quarter '22, the share of CLA of freehold property in operation continued to increase. At the end of June, 56% of the current lettable area in SSG is held freehold. The chart on the upper right-hand side shows the split between CSS and OK Minilager. 47% of current lettable area in the City Self-Storage segment is freehold, while 70% of current lettable area in OK Minilager is freehold. And the share of freehold is increasing in both segments and almost all the area under development is freehold. So freehold investment property has increased with 5% since December to NOK 2.5 billion at the end of June. The chart on the upper right-hand side shows the development in freehold investment property since the IPO in 2017. Our freehold portfolio consists of 187,200 gross area freehold property and 19,500 gross area for containers. Approximately 65% to 70% of gross area is utilized as lettable area for self-storage. External valuations are reviewed on a quarterly basis. The chart on the lower left-hand side shows gross area and yield per region for the last 2 years. The total average yield in the group is 4.9% as of December '21. The yield in Denmark increased during 2021 due to the acquisition of Dit Pulterkammer, with properties in the Jutland area. Change in fair value over P&L back to first quarter '20 is shown on the chart on the lower right-hand side. Current lettable area, CLA, is an important growth indicator for us. And there has been a stable growth in current lettable area since 2017, consisting of both organic growth and growth from acquisitions. Current lettable area increased with 8,700 square meters during the first half year of 2022. We will accelerate growth this year by opening 15,000-plus lettable area. We have 37,300 under development, including 12,000 rented to office tenants. We have a solid pipeline. As of June, we had 37,300 square meters under development, of which 27,000 is in the Greater Oslo area, as you can see on the map. We have rental income from 12,000 of the square meters, mainly from expiring contracts with office tenants. And we plan to accelerate development growth with a projected addition of 15,000-plus during the year. The pie chart shows the distribution of current lettable area in operation with a larger portion in the Greater Oslo area. Self-storage revenue can be calculated by using the 3 KPIs: current lettable area, occupancy and average rent per square meter. As of June, we had a current lettable area of 180,500 square meters. 165,600 of these has been in operation more than 12 months and are defined as mature. And we have 37,000 square meters, which are under development. And we are continuously increasing lettable area further. And we plan to open 15,000 square meters during this year. We continue to experience high demand for our services and the occupancy level for the second quarter was 90.5%, which is above the target occupancy level of 90%. The average rent level for the second quarter was NOK 2,326 per square meter per year. Discounts to new customers have been used historically to boost occupancy, but with occupancy at target level, we are focused on optimizing rent levels. Reported revenue for the second quarter was NOK 97.9 million, including NOK 8.8 million in other revenue. With our solid pipeline and steady growth in lettable area, there is a significant upside potential from the existing assets in the years to come with high margins. There will be operating costs related to maintenance and operation of new facilities, but the business model has proven very scalable. The financial position shows that total assets are NOK 3.6 billion as of June with an equity ratio of 53%. Freehold investment property has exceeded NOK 2.5 billion and includes a pipeline of 37,300 square meters not yet opened. Interest-bearing debt amounted to NOK 919 million as of June. The margin is 170 bps, and with 82% of the interest fixed by the 5 years interest rate swaps we entered into in 2020 and 2021, the financial costs are at favorable terms and predictable. Loan-to-value is only 36% and has a good hand rub to covenant of 60%. We have a solid cash position of NOK 114 million, and an undrawn revolving credit facility of NOK 245 million, with no other restrictions than the general covenants. In addition, we have a strong cash flow from operating activities. So we have a solid financial position, a strong organization and attractive assets, and we are well positioned to leverage our scalable platform for further profitable growth and expansions. Now Fabian will go through the business development in the quarter. -------------------------------------------------------------------------------- Fabian Emil Søbak, Self Storage Group ASA - CEO [3] -------------------------------------------------------------------------------- Thank you, Cecilie. There is a significant untapped potential for self-storage in the Scandinavian countries. The Norwegian market, for example, is less than half the size of the U.K. market in terms of square meters per capita. Awareness about self-storage is still low in our markets. The key driver for demand growth is urbanization and increased awareness. New building standards with smaller apartments with less storage space is also driving demand. The Norwegian self-storage market is the least developed in Scandinavia. SSG has a strong position in the Norwegian market, and this is a position we are focused on developing even further. The market in Norway is fragmented with a lot of small- and medium-sized local operators. In Sweden, the market is dominated by multinational operators. SSG is a regional operator with 6 facilities in Stockholm. The Danish market also has a presence of multinational operators. SSG has the second largest footprint with 11 facilities in the Copenhagen and Jutland area. The self-storage market is growing in all of the Scandinavian countries and all markets are fragmented. We have identified the 6 most important success factors in self-storage. The most important factor for profitability is scale. And it takes a long time to build scale in self-storage. Our own company, for instance, was founded in 1993. With scale in the market, we are able to leverage our brand and to be the top-of-mind operator. Scale also enables us to invest in IT and automation, which is another important success factor. To succeed, you also need to have good locations close to the target markets. We also need to provide the best customer service to ensure customer acquisition and retention. And in addition to this, any successful self-storage company relies on a share of freehold facilities in the portfolio. With 2 strong brands in the market, we can compete on both value and price. City Self-Storage is our high-end brand providing self-storage and related services in the Scandinavian capital. Some of the facilities are manned. We have 50 CSS facilities in Scandinavia. In City Self-Storage, we have a strong pipeline in the Greater Oslo region. We also have facilities in Stavanger and Trondheim, and we plan to open in new cities in the next months and years. OK Minilager is our country-wide discount-priced offering. We have 81 facilities across Norway. OK Minilager is the second largest operator in Norway behind City Self-Storage. And all of the OK Minilager sites are unmanned. Well, we have 2 separate brands in the market. Most of our back office functions are shared between the 2 companies. And by sharing the back-office functions, we are able to utilize our scale at the same time as we are able to cater to different consumer preferences with our 2 brands. SSG has a large and diversified customer base. The customer concentration is low, and the customer base is increasingly loyal. About 80% of our customers are private customers and 20% are business customers. The average rental time per customer is approximately 12 months. The age of our private customers is somewhat evenly distributed as you can see on the graph. The average age is 45 years for our individual private customers. Customer satisfaction is an extremely important metric for us. We currently enjoy a trust score of 4.6 stars on Trustpilot for our companies combined. There are a number of different reasons why individuals need self-storage. Among the most important demand drivers are relocations, refurbishments, downsizing, lack of space, and student storage. Our business model with online booking is highly scalable, and it enables us to enter both small and large markets. Last year, we introduced a fully automated booking engine, which includes e-signing and credit check. We have introduced an app-based access system on a number of stores and this is something we will continue to roll out. With our self-service portal, our customers can manage their accounts on their own, and the customers are able to get in contact with us through their preferred channel, with our omni-channel service software. In Q4 2021, we launched a new website for CSS Norway and a new website for OK Minilager has been launched in August 2022. SSG will continue to invest and innovate in digital solutions to increase automation and to stay relevant to the consumers. In Q1, SSG has acquired one land property. This is a greenfield development project at Rødmyr in Skien. This is a central location in Norway's seventh largest metropolitan area. The property has an estimated lettable area of 3,100 CLA. And these CLA will be opened in phases. The facility will be operated under the City Self-Storage brand, and we expect to open in the second quarter of 2023. We have a strong pipeline, which we are focused on developing at the moment. And here are some selected conversion and expansion projects. At Persveien 28 in Oslo, the conversion of an office building has started. We plan to open this facility either in the fourth quarter of 2022 or the first quarter of 2023. This property is highly visible in an attractive development area in Oslo. We have received the building permission to convert the remaining area of our property in General Birchs gate in Oslo. And we plan to open a part of this area in the first quarter of 2023. At Billingstadsletta 91 in Asker, we have started the planning and zoning process and we plan to open the first phase of this project in the first quarter of 2023. We also have a property in Petroleumsveien 28 in Stavanger, which was opened in the second quarter of 2022. A new lift serving all floors of the building is currently under development. We have 4 active greenfield development projects which we are working on at the moment. The mentioned property in Skien is already in construction phase. And as mentioned, we plan to open this facility in the second quarter of 2023. We plan to develop a new facility on the land plot in Sørlandsparken in Kristiansand. Sørlandsparken is one of the largest commercial areas in Norway. We expect to get the building permission in the third quarter of 2022, and we plan to open this facility in the next year. The facility will have an estimated lettable area of 2,400 square meters and will be operated under the City Self-Storage brand. We plan to develop a new facility on a newly acquired land plot at Kampenesmosen in Sarpsborg. The building permission process is initiated and we plan to open during the second quarter of 2023. This facility will have an estimated lettable area of 2,000 square meters and be operated under the CSS brand. The fourth greenfield development project is a property in Knarvik, just north of Bergen. The building permission process is initiated, and we plan to open during the second quarter of 2023. This facility will have an estimated lettable area of 1,100 square meters and be operated under the OK Minilager brand. In July 2022, SSG acquired a property in Esbjerg in Denmark. This investment marks the start of an organic growth journey outside of Norway. SSG is planning to build out our Danish footprint, entering both larger and smaller markets. In Q1 2023, a leasehold facility at Gärdet in Sweden with a CLA of 3,300 will be discontinued. SSG, however, is planning to initiate organic growth in Sweden based on the group's existing Swedish platform. SSG's rent levels are positioned to outpace cost inflation. SSG's high-margin business model and rent increase flexibility is advantages in a high-inflation environment. Fit-out material costs have increased with 30% to 40% during the past 12 months. SSG has implemented several cost-saving measures on projects to partially offset increased cost of fit-out. Steel is the main component in fit-out installations, but the fit-out cost is a smaller part of the total investment in our properties. Our companies have a low-carbon footprint. We aim to be part of a circular economy as we give our customers the opportunity to take care of their belongings instead of throwing and later buy new, and by that, reducing consumption. SSG is converting vacant buildings into self-storage, extending building lifetime. Our greenfield projects are built according to strict Nordic building regulations. SSG has limited energy consumption with a focus on reducing the use of electricity per square meters even further. As of June 2022, 72% of our owned facilities have full LED lightning and 11% have partly LED lightning. All new facilities are equipped with LED lights. SSG has a strong platform for further growth. We focus on organic growth in the Greater Oslo area, strengthening the position of both CSS and OK Minilager brand in the region. We focus on the larger urban areas in Norway. We see a potential to enter over 30 smaller markets where we have no capacity in Norway. We also see a growth potential within existing smaller markets in Norway. We see organic growth opportunities in both larger and smaller markets in Sweden and Denmark. And in addition to this, we see opportunity for M&A in selected markets. At last, I would like to summarize our strategy. To grow our freehold properties in selected urban markets, we focus on the larger urban areas in Norway. We continue to grow organically in Denmark, and we plan to initiate organic growth in Sweden. We aim to reach an occupancy of 90% for the group. We continue to invest in CRM and digital platforms. We continue to integrate sustainability in all of our activities. We focus on customer experience and lean operation, and we look to selectively acquire self-storage providers in the Nordics. So this was the end of our second quarter presentation. Thanks for your time.

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